Amazon Prime Challenges & Tactics

What’s better than paying $99 per year and receiving a 2-day shipping for free on most orders? The answer would be, getting a 2-day shipping option for free. That’s exactly what Walmart / Jet.com are now offering to US shoppers, for any order over $35. And, since the number 1 reason for subscribing to Amazon Prime is free 2-day delivery, Amazon might start feeling the pinch.

Amazon’s right to invest in Prime: The growth in Amazon Prime membership is critical to Amazon’s lead in retail, and is one of the reasons for Amazon’s e-commerce leadership. Amazon Prime members are loyal customers, spending twice as much money as non-Prime Amazon customers. And so far, Amazon Prime is the indeed a hugely successful retail loyalty plan, with an estimated 85 million members, or 63% of Amazon users (Consumer Intelligence Research Partners) using Prime.

A Statista survey (March 2017) further breaks down the numbers, demonstrating that 8% of Prime users are, in fact, using somebody else’s membership, and 4% take advantage of the Amazon student membership.

75% of Prime subscribers opt for the $99 a year plan; 14% pay monthly ($10.99 a month) and an additional 11% prefer to pay for Prime Video only ($8.99 a month), according to Prosper Insights & Analytics.

Amazon offers many perks for Prime members, delivery being the first, but Fresh, and content (including award winning TV, and music options), are also on the list of reasons for joining Amazon Prime.

In delivery, Amazon is expanding its options:

(Meanwhile, Walmart plans to add 1,000 grocery pickup locations in the U.S. for “click and collect”, and Amazon itself will offer more pickup locations inside recently acquired WholeFoods.)

Prime Day also serves as an effective tactic for recruiting new Prime members. The company reported that the third annual Prime Day was the biggest global shopping event ever for Amazon with more new Prime members joining Prime than any single day in Amazon history.

In addition to those, here are a few outside of the box tactics which Amazon utilizes, to build loyalty and increase penetration.

1. Affordability

To make itself more approachable, and attract more future Prime members (especially Millennials and Gen Z consumers)l Amazon recently revamped its Prime Student program, offering a monthly payment (still priced at a 50% discount, after a 6-month free trial period), instead of just one annual option. To sign up, students can visit www.amazon.com/joinstudent.

One example that combines convenience, ease of use and affordability, while approaching a specific segment, is Spoon University – we think Amazon should look at these concepts to strengthen its lead with this demographic.

In June, it announced a reduced membership price to low-income shoppers receiving government assistance. Amazon’s discounted rate of $5.99 per month is nearly half off the full-price membership.

2. New Demographics

Another loyalty tactic is helping parents and teens manage shopping (and turning teens into loyal Amazon shoppers in the process). Amazon announced on October that teens (13 to 17) can now explore Amazon with the independence of their own login and take advantage of select Prime benefits if their parents have a membership. Parents can approve all orders or set pre-approved spending limits per order – offering teens a customized level of autonomy that can change and grow as they do. Teens and parents can learn more and sign-up at amazon.com/forteens. See a video demonstrating the process here.

3. Omni-Channel Benefits

Amazon and Whole Foods Market technology teams will begin to integrate Amazon Prime into the Whole Foods Market point-of-sale system, and when this work is complete, Prime members will receive special savings and in-store benefits.

4. Utilizing IoT

Amazon has a future loyalty-enhancing instrument – Amazon Echo (Alexa). The virtual assistant, a Prime Day hit, serves as a “real estate” that Amazon has in many homes today. This utility makes it easier and more fun to buy from Amazon and engage with the brand, and with Prime membership, more options are available.

The Amazon Dash Button, too, is offered to Prime members only (including the Surprise sweets button).

5. Private Label

Amazon Prime enables customers to access Amazon Elements products, Amazon’s own line of personal care everyday essentials. This is another area now tapped by Walmart/Jet, without requiring pre-payment (and to make matters worse for Amazon, the PL is Millennial-oriented – threatening the most lucrative Prime demographic).

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Most Prime members believe that they are getting a good value for money with Prime. But until now, there weren’t enough alternatives. With Walmart’s increasing sophistication on “last mile” (including recent NYC-oriented acquisition of Parcel), and no membership fees required to participate, more Millennial shoppers are expected to slowly start migrating towards Jet.com.

As always, we believe that the real competitive advantage will be achieved via curation, bundling, and consumer centricity.